Gold rallied to a 15-month high earlier this month on expectations that the US Fed would keep rates lower for longer amid risks to the global economy, adding to the appeal of owning non-interest-bearing assets.
Though Gold remained on track for its biggest weekly slide in nearly two months, the long-term outlook still remains bullish. If you are a gold investor, buying opportunity is emerging after the recent slide.
Demand for gold has jumped almost 21 per cent in the first quarter of 2016, its best quarter gain from 1985. Gold rallied to a 15-month high earlier this month on expectations that the US Fed would keep rates lower for longer amid risks to the global economy, adding to the appeal of owning non-interest-bearing assets.
As the likelihood of a rate move increased, the dollar strengthened, cutting demand for gold as an alternative asset. The hawkish minutes from the Fed meeting and economic data show an increasing chance of a rate hike in June or July. That wasn’t priced in a few months ago and implies further upside for the dollar and quite a beating for gold.
Holdings in gold-backed exchange-traded products have kept rising, even as prices retreated. Assets climbed 5.9 metric tons to 1,833.1 tons, the highest since December 2013. When gold was declining during 2013, the yellow metal was moving from west to east. We could see this from outflows from Exchange Traded Funds (ETF). But now again gold is moving from East to West and we can see that from the inflows seen in ETF.
George Soros, who once called gold ‘the ultimate bubble,’ has resumed buying the precious metal after a three-year hiatus. The billionaire investor disclosed that in the first quarter he bought 1.05 million shares in SPDR Gold Trust, the world’s biggest gold exchanged-traded fund, valued at about $123.5 million.
Negative interest rates introduced by the central banks in Europe and Japan have led to a backlash from investors, who have sought to invest in gold as a alternative currency amid nervousness about the impact of such policies on their economies and currencies.
If we look at the domestic market, outflows from Indian ETFs can be seen. One of the reasons could be there are many who would have bought gold earlier and seen value erode as prices fell. Now the prices are recovering finally, and they are using this as an opportunity to exit their positions. Technically, gold on MCX is on the verge of breaking the ascending triangle pattern which makes it bearish for short term. Buying opportunity emerges around 29,000 as gold after a spectacular rally is consolidating.
The author is director, Tradebulls